The Pfandbrief 2011 | 2012

The Legal Framework for Issuing Pfandbriefe
Mortgage lending value vs. market value
Value
Market value
Mortgage lending value
60% mortgage lending limit
10
Time
Conservative valuation of real estate
The mortgage lending value (MLV) is determined according to detailed statutory provisions
Based on permanent features of the property
Market value is the upper limit for the MLV
Occasion-related review of the MLV
Claims up to 60% of the MLV are eligible as cover
One of the central pillars of the safety of the Mortgage Pfandbrief is that property financings
may be included in cover only up to the mortgage lending limit of 60% of the mortgage lending
value (MLV). The way in which the MLV is to be determined, and the requirements in
respect of the valuer’s qualifications and the valuer’s independence vis-à-vis the Pfandbrief
Bank are regulated in detail by the Pfandbrief Act and the Regulation on the Determination
of the Mortgage Lending Value (BelWertV). The MLV reflects only the long-term, sustainable
aspects of a property, meaning that speculative aspects are disregarded. The aim here is that
the MLV, unlike the market value, shows as little in the way of fluctuation as possible. The
MLV must not exceed, and indeed is usually lower than, the market value. However, the
difference between the two values does not remain constant, for which reason it is not possible
to make a simple value deduction. Instead, the difference is determined by the expectations
of the market with respect to the future price development of the property in question.
Yet the mortgage lending limit of 60% of the MLV does not mean that a loan, to be eligible as
cover, may only be equivalent to this 60% limit. Only the part of the loan that serves as cover
may not exceed this limit. This can be achieved by dividing the loan into two parts – one up
to the 60% limit and the other above it. However, this is not necessary in practice as an ideal
division is possible and is applied in most cases.
Finally, the properties lent against must be insured against the risks relevant to the location
and type of property concerned.